HAVERING PENSION FUND ANNUAL REPORT MARCH Pensions Regulator Registration Number

Transcription

1 HAVERING PENSION FUND ANNUAL REPORT MARCH 2008 Pensions Regulator Registration Number Financial Services Town hall Main Road Romford, Essex, RM1 3BB Tel: Fax:

2 CONTENTS PAGE TRUSTEE REPORT Message from the chairman 3 Introduction 4 Management Structure 4 Training and Development 5 Key Issues 5 ADMINISTRATION REPORT Work Programme 7 Membership 7 Other Employers in the fund 7 Scheme Details 7 Contributions to the Fund 8 Pension Scheme local performance indicators 8 INVESTMENT REPORT Investment arrangements 10 Investment Strategy 10 Performance 10 Pension Fund Accounts 11 Notes to the accounts 12 Actuarial Statement 16 CONTACT POINTS FOR FURTHER INFORMATION 18 APPENDICES 19 Governance Compliance Statement Communication Strategy Funding Strategy Statement (FSS) Statement of Investment Principles (SIP) Myner s Compliance Table

3 TRUSTEE REPORT Message from the Chairman Welcome to the annual report of the activities and accounts of the Havering Pension Fund which covers the period 1 st April 2007 to 31 st March 2008 (2007/08). On page 5 you will see the Pensions Committee considered a number of reports covering key issues and also undertook a number of associated training and development sessions. As well as this report highlighting the work of the Pensions Committee you will see an overview of the work carried out by the Pensions Administration team. In March 2008 we received the results of the 2007 actuarial valuation and the committee have been assessing the results and will be making some changes to the structure of the assets in the fund during the reporting period 1 April 2008 to 31 March 2009 (2008/09), so we have another busy year ahead. The value of the Fund as at 31 st March 2008 was 349m (a reduction of 4.7% compared to 366m in 2006/07). This was invested in equities in listed companies both in the UK and overseas, bonds, property funds and cash. The overall return on the fund s investments in 2007/08 was (5.9%). This represented an underperformance of (3.6%) against the tactical benchmark and an underperformance of (13.0%) against the strategic benchmark. For comparisons, the return of the fund for 2006/07 was 6.3%, which represented an outperformance of.08% against the tactical benchmark and an outperformance of 4.4% against the strategic benchmark. One of the major factors influencing the fund value and performance of the pension fund was the negative market impact in the wake of the of the credit crunch which has seen unprecedented volatility since the latter half of 2007/08. For 2008/09 it is a statutory requirement that this report is produced annually. We have produced this report for the first time in this format in advance of the statutory requirement to give readers an opportunity to give feedback or views that would help improve the information included within the report. I hope you find this report provides clear information but should you require clarification or wish to give feedback on this report you will find the contact details at the back of the report. Councillor Melvin Wallace Chairman Pensions Committee 3

4 INTRODUCTION The Council is an administering Authority under the Local Government Pension Scheme Regulations and as such invests employee and employer contributions into a Fund in order to pay pension benefits to scheme members. The Fund is called the Havering Pension Fund. The Havering Pension Fund provides benefits to Council employees (except teachers). The Fund is financed by contributions from employees, employers and from profits, interest and dividends on its investments. The fund does not form part of the Council s consolidated accounts. The performance of the Fund impacts on the cost of Council services through the cost of employer contributions. However, the performance of the Pension Fund Investments will not affect pension benefits to scheme members as benefits are guaranteed by Statutory Regulations irrespective of performance. THE MANAGEMENT STRUCTURE The Council sets the overall investment strategy of the Fund and monitors performance of five different managers (who have specific mandates) against an agreed performance in relation to an agreed benchmark. The Council had delegated this responsibility to the Pensions Committee. Day to day management of the fund is delegated to the Group Director Finance and Commerce. The committee also obtains and considers advice from the authority s officers, and as necessary from the fund s appointed professional adviser, actuary and performance measurers who also attend the meetings as and when required. Pensions Committee members during 2007/08: Cllr Melvin Wallace (Chairman) Cllr Roger Ramsey (Vice Chairman) Cllr David Charles replaced by Cllr Benham Cllr Robby Misir Cllr Clarence Barrett Cllr Linda van den Hende Non voting Union Members: Brian Long (Unison) Michael Parker (TGWU) The terms of reference are: To consider and agree the investment strategy and statement of investment principles for the pension fund To authorise the invitation of tenders and the award of contracts for actuaries, advisers and fund managers or other related investment matters (where not covered by existing delegation arrangements) To appoint and review the performance of advisers and investment managers for Council and pension fund investments To take decisions on those matters not to be the responsibility of the Cabinet under the Local Authorities (Functions and Responsibilities)(England) Regulations 2000 relating to those matters concerning pensions made under Regulations set out in Sections 7, 12 or 24 of the Superannuation Act 1972 Fund Administrator Fund Actuary Auditors London Borough of Havering, Town Hall, Romford, RM1 3BD Hewitt Bacon & Woodrow Audit Commission Custodians State Street Global Assets 4

5 Investment Managers Investment Advisers Legal Advisers Performance Measurement AVC Providers Standard Life Investments (UK Equities) Royal London Asset Management (Investment Bonds) Western/Citigroup (Global High Yield Bonds) Alliance Bernstein Institutional Investors (Global Equities) UBS (Property) HG Capital (Private Equity) Hymans Robertson London Borough of Havering Legal Services provide legal advice as necessary (specialist advice is procured as necessary) WM Company Prudential and Standard Life The Committee met 5 times during 2007/08. In addition, the Committee had the first meeting of a cycle of meetings to review the investment strategy. TRAINING AND DEVELOPMENT Training and development took place over the year to ensure that Members of the Committee were fully briefed in the decisions they were taking. This covered: Interpretation of Monitoring Reports Overview of Strategy decisions Understanding Actuarial results Preparing for an Investment Strategy Review A Training and Development Plan is in place for 2008/09 and full coverage of the pensions committee work and training plan can be found on the council s website: within Council and Democracy, About council tax and our finances, Havering Pension Fund, report on the work of the pensions committee ). KEY REPORTS ARISING IN THE PERIOD Communication Strategy and Governance Policy In line with the 1997 Local Government Pension Scheme (LGPS) regulations the London Borough of Havering as an administering authority has undertaken an annual review of the Pension Fund s Communication Strategy and Governance Policy (replaced by the Governance Compliance Statement). Whistleblowing Requirements of the Pensions Act An annual review was undertaken and no breaches were reported. Review of Statement of Investment Principles and Funding Strategy Statement The process of a fundamental review has commenced in the light of the Actuarial results. Annual Report for Members of the Fund This was reviewed and approved for distribution. Reviewed performance of Advisers, Custodians and Actuary Commenced a new contract for Investment Advice 5

6 Considered performance of Pensions Administration Service Received the results of the Actuarial Review Pension Fund performance Monitoring for periods ending 31 March 07, 30 June 07, 30 September 07 and December 07. All the pension committee agenda and minutes can be found on the Council s website at : and follow the links council and democracy, committee agendas and minutes, pensions committee. GOVERANCE COMPLIANCE STATEMENT On the 30 th June 2007, a new regulation was added to The Local Government Pension Scheme Regulations 1997 to require LGPS administering authorities to prepare publish and maintain statements of compliance against a set of practice principles on scheme governance and stewardship. This statement can be found in the appendices at the back of the report. The Governance Compliance statement is also available on the Council s website at (Within Council and Democracy, About council tax and our finances, Havering Pension Fund ) 6

7 ADMINISTRATION REPORT The Council s pension administration section is responsible for all aspects of scheme membership including payment of benefits, processing joiners and leavers and administration of the Council s Additional Voluntary Contributions (AVC) scheme. WORK PROGRAMME FOR 2007/08 In addition to the ongoing work of the pension administration section there were some key projects that were identified as part of the unit s work programme: Continuation of the Pension Partnership with Redbridge including a joint communication projects in preparation fro the new Pension Regulations. Preparation for the complete change to the Pension Scheme Regulations implemented on the 1 st April Data preparation and supporting work for the 2007 triennial Pension Fund valuation. Staff training and development on new legislation and subsequent system updates. Production of Annual Benefit Statements for current and deferred members. MEMBERSHIP: The membership of the fund reported on the balance sheet as at 31 March 2008 was as follows: As at 31 March 2008 As at 31 March 2007 Contributors 5,803 5,664 Deferred pensioners 3,094 2,762 Pensioners and Dependants 4,587 4,468 All council employees who have a permanent or temporary contract of 3 months or more (except teachers), automatically join the fund from the first day of employment. OTHER EMPOYERS IN THE FUND The other employers in the Pension Fund are as follows: Scheduled bodies Havering College of Further Education Havering Sixth Form College Homes in Havering Admitted Bodies Havering Citizens Advice Bureau Morrisons (formerly AWG) May Gurney Catering for Education Sports & Leisure Management Ltd KGB Cleaners SCHEME DETAILS From 1 st April 2008, the new look pension scheme came into force for all active members and potential members of the Local Government Pension Scheme. The council issued newsletters and DVDs to all active members who were automatically transferred to the new scheme. The current Local Government Pension Scheme (LGPS) is a final salary scheme with pension s payable being based on the best of the last three year s pensionable pay and the number of years of reckonable service. Pensions are increased annually in line with the Retail Price Index unless 7

8 retirement occurred on the grounds of Redundancy of Efficiency before age 55, in which case, any increase is payable from age 55. The scheme also pays a death benefit in the form of a lump sum and a pension to the spouse, civil partner, or nominated cohabitee of a member who dies in service. A dependant s pension is generally also paid to the spouse, civil partner or nominated cohabitee of a member who dies after retirement, or with a deferred pension. CONTRIBUTIONS TO THE FUND Employees who were eligible to be members of the scheme prior to 31 March 1998 are required to make contributions by deductions from earnings at the rate of 6% for officer staff and 5% for manual staff. As from 1 April 1998, all new entrants to the fund are required to pay 6% of earnings. With effect from 1 st April 2008 instead of paying a standard contribution rate, as mentioned above, there will be different contribution rates for different pay bands. These new rates have been designed to give more equality between the cost and benefits of scheme membership. The new rates are between 5.5 and 7.5% of your pensionable pay. The rate you pay depends on which pay band you fall into. The Council is required to make balancing contributions determined by the Fund s actuary (Hewitt Bacon and Woodrow) to maintain the solvency of the Fund. The employers contribution for the London Borough of Havering employees was 21.5% of salary in 2007/2008. The Council s annual contribution is reviewed every three years. The latest review was based on data as at 31 st March 2007 and will effect employer contribution for 2008/09, 2009/10 and 2010/11. Annual Benefit Statements Annual benefit statements are produced by the Pensions Office for members of the scheme with more than 3 months membership, which provide details of the member s own pension benefit entitlements. An annual report in the form of a leaflet is sent to contributors and deferred pensioners with the annual benefit statements and is sent to pensioners with their pension increase letters. PENSION SERVICES LOCAL PERFORMANCE INDICATORS 2007/08 INDICATOR What is it an indicator of Actual 2006/07 Retirement This indicator measures payments effectiveness through service processed within 5 delivery and is a standard working days throughout Local Early retirement estimates processed within 15 working days Notification of deferred benefits within one month Government To produce estimates for early retirements i.e. illhealth s, redundancies and voluntary retirements. This indicator is particularly important to service clusters The percentage of deferred benefits calculated within one month of the employee leaving Actual 2007/08 Target 2007/08 Target 2008/ % 96.24% 90% 95% 83.25% 92.32% There were two poor performing months that resulted in a failure to meet target, these were as a result of priority being given to a large number of retirements 97% 97% 78.03% 86.51% 78% 90% 8

9 INDICATOR What is it an indicator of Actual 2006/07 Refunds processed Refunds of contributions within 10 working processed upon request by days former employees. This indicator is a standard used throughout the Local Government and will serve Accurate calculation of benefit figures as a good benchmark The accuracy of first time benefit calculations at the checking stage. A quality measure to ensure customers receive correct payments at the earliest opportunity. This indicator can be directly controlled by pension staff Actual 2007/08 Target 2007/08 Target 2008/ % 90.24% 88% 95% 97.70% 98.09% The difficulty in meeting target was as a result of unusual peaks in workload and bedding in two new members of staff 98.5% 99.5% Whistle Blowing The Pension fund complies with the whistle blowing requirements of the pension act that came into force on the 6 April It urges anyone to inform the correct authorities of any known wrong doings. The process for reporting breaches of the law to the pension s regulator is available on the council s website at: and follow the links Council and Democracy, About Council Tax and our Finances, Havering pension fund. Communication strategy The Local Government Pension Scheme regulations require the administration authority to prepare and publish a written statement covering communications with scheme members and employing authorities. This statement can be found in the appendices at the back of the report. This Statement has also been published on the Council s website at (Within Council and Democracy, About Council Tax and our Finances, Havering Pension Fund ). 9

10 INVESTMENT REPORT Investment Arrangements The overall direction of the Fund s Investment Strategy is delegated to the Council s Pensions Committee. The Pensions Committee also oversees the Fund s investment arrangements. The Council has in place an Investment Strategy, which consists of two documents The Statement of Investment Principles and the Funding Strategy Statement. Statement of Investment Principles The Local Government Pension Scheme regulations require the administrating authority to prepare and publish a Statement of Investment Principles. This Statement sets out the Council s policy on a range of matters relating to the investments and management of the Pension Fund and is regularly reviewed and updated. A report commissioned by the Government, The Myner s Report, recommended ten principles of best practice in managing Pension Fund investments. The Council s SIP outlines the Pension Fund s compliance with these principles. Funding Strategy Statement The Council also produces a Funding Strategy Statement which encompasses the aims and purposes of the fund, and the overall investment strategy. Both of these statements can be found in the appendices section at the back of this report. Both of these statements have also have been published on the Council s website at (Within Council and Democracy, About council tax and our finances, Havering Pension Fund ) The Council undertakes regular reviews of the above policy statements and will consider any comments you may have for future reviews. Please forward comments to the contact point designated at the back of the report. Havering restructured the investment management of the fund in February 2005 and moved from a position of having a sole external manager to having five new managers with specific investment mandates. The five fund managers and the market value of assets under their management at the 31 st March 2008 were as follows: Manager Mandate Value,000 % Standard Life UK Equities 110, Alliance Global 72, Bernstein Equities Royal London Investment 95, Grade Bonds Westerns Global Bonds 29, UBS Property 30, Sub total 337, Other Total Fund 338, Performance The main investment objective is to maximise the overall return on the Pension Fund s investments from income and capital appreciation without high risk and to maintain the ready marketability of the portfolio to meet the Fund s fluctuating cash requirements. Havering Pension Fund uses the services of The WM Company to provide comparative statistics on the performance of this Fund. The performance of the fund is measured against a tactical and a strategic benchmark. The tactical benchmark is a combination of all the individual benchmarks for each manager. The strategic benchmark for the overall fund is a liability benchmark of FTSE A Gilts over 15 years plus 3.6% gross (3% net) p.a. In 2007/08, the overall return on the Fund s investments was (5.9%) (2006/07 6.3%) This represented an under performance of (3.6%) against the tactical benchmark (2006/07 0.8%) and an underperformance of (13.0%) against the strategic benchmark (2006/07 4.4%). There has been unprecedented volatility in 2007/08 in the wake of the credit crunch, sub-prime mortgages and plummeting stock markets. Main detractors from performance for 2007/08 were attributable to stock selection in UK and Overseas Equities. During the forthcoming year the Fund is undergoing a review of its current investment strategy with a view to a possible restructure of asset allocation. The longer term performance is as follows: 3 years to years to Fund 7.3% 10.8% Benchmark 7.8% 11.6% (tactical) return Difference (0.5)% (0.8)% 10

11 Pension Fund Account for the year ended 31 st March /07 Notes 2007/ Contributions and benefits 23,666 Contributions receivable 3 24,963 3,574 Transfers in 4 4,178 27,240 29,141 (21,028) Benefits payable 5 (22,719) (2,246) Leavers 6 (1,660) (534) Administration 7 (580) (23,808) (24,959) 3,432 Net additions (withdrawals) from dealings with members 4,182 Returns on Investments 10,479 Investment income 9 11,686 12,596 Change in market value of investments 8 (31,955) (1,195) Investment management expenses 10 (1,153) 21,880 Net returns on investments (21,422) 25,312 Net increase/ (decrease) in the Fund during the year (17,240) 340,836 Net assets of the scheme at start of year 366, ,148 Net assets of the scheme at end of year 348,908 Net Asset Statement 31 March 31 March 2007 Note Investments ,478 Equities 173,347 65,009 Fixed interest securities 64,855 28,000 Index-linked securities 29,865 0 Mortgaged Backed Securities 0 71,037 Pooled Investment Vehicles 65,171 3,707 Short term investments Cash instruments 15 Short-term Securities 5 3,298 Cash & deposits 4, , ,891 2,604 Net current assets 12 4, ,148 Net assets of the scheme at end of year 348,908 I certify that the Pension Fund Account and Net Assets Statements fairly present the income and expenditure in 2007/08 and the Pension Fund s financial position as at 31st March Rita Greenwood, CPFA Group Director Finance and Commerce Date 30 September

12 Notes to the Pension Fund 1. Basis of Preparation The Financial Statements have been prepared in accordance with the Code of Practice on Local Authority Accounting issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) and follows the guidelines set out in the Statement of Recommended Practice, Financial Reports of Pension Schemes. The Financial Statements summarise the transactions of the scheme and the net assets of the Fund. The Financial Statements do not take account of liabilities to pay pensions and other benefits after the financial year end. The actuarial position of the scheme, which does take account of such obligations, is dealt with on page 51 and these Financial Statements should be read in conjunction with them. 2. Accounting Policies The Financial Statements have been prepared on an accruals basis but transfer values are included on a cash basis in accordance with the SORP. Investments are stated at market value with any surplus or deficit on valuation being debited/ credited to the Fund account. Shares recorded on the Stock Exchange Electronic Trading Service (SETS) are valued on the basis of the last traded price. Other investments are valued at their midpoint market value on the last working day of the financial year. Transactions in foreign currencies are taken into account at the ruling rate of exchange at the time of the transaction and in the financial statements at rates ruling on the 31st March. Investment income is taken into account where dividends are declared but not paid at the financial year end. A proportion of relevant officers salary costs, including related oncosts, has been charged to the Fund. 3. Contributions Receivable 2007/08 Employees Employers Total Havering **4,702 16,595 21,297 Special * Contribution Scheduled 590 1,721 2,311 Bodies Admitted Bodies 5,472 19,491 24, /07 Employees Employers Total Havering 4,677 15,510 20,187 Special 1,157 1,157 Contribution Scheduled 471 1,271 1,742 Bodies Admitted Bodies 5,284 18,382 23,666 * The special contribution of 0.587m is in respect of early retirements. **This includes 119,000 of additional contributions by employees to purchase added years Note: Some employees made additional voluntary contributions (AVC s) of 77,130 excluded from the statements. These are deducted from the payroll and forwarded to the stakeholder pension schemes provided by the Prudential, Nationwide and Standard Life. The amounts forwarded during 2007/08 were 72,029 to the Prudential, 2,877 to the Nationwide and 2,224 to Standard Life. 4. Transfers In Individual transfers from other schemes 2007/ / ,178 3,574 12

13 6. Payments To and On Account of Leavers 5. Benefits Payable 2007/08 Lump Pensions Sums Total Havering 18,272 3,867 22,139 Scheduled Bodies Admitted Bodies ,514 4,205 22, /07 Lump Pensions Sums Total Havering 17,304 3,349 20,653 Scheduled Bodies Admitted Bodies Investments 17,501 3,527 21, / / Refunds to members 1 13 Transfers out to other schemes 1,659 2, Administration 1,660 2, / / Staff Costs Fees Computer and Other Value at 31 March 2007 Purchases at cost Sales Proceeds Change in Market Value Cash Movement Value at 31 March Equities 192,478 94,121 (89,841) (23,411) 0 173,347 Fixed interest 65, ,714 (141,303) (6,565) 0 64,855 Securities Index-linked 28,000 17,396 (18,678) 3, ,865 Securities Mortgaged Backed Securities Pooled Investment 71,037 0 (705) (5,161) 0 65,171 Vehicles Short term 3, ,966 6,673 investments Cash instruments 15 26,377 (26,387) Cash deposits 3, ,642 4, , ,608 (276,914) (31,955) 4, ,891 The change in market value of investments during the year comprises all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments and due to the transfer of assets during the year. 13

14 Some of the 2007/08 opening balances were revised due to a review of asset classification during 2007/08, as follows: Balance as at Prior year Adjustment Revised Balance as at Equities 197,966 (5,488) 192,478 Fixed Interest Securities 66,966 (1,957) 65,009 Index-Linked Securities 22,383 5,617 28,000 Mortgage Backed securities 2,745 (2,745) 0 Pooled Investment Vehicles 65,549 5,488 71,037 Other 915 (915) 0 Short term Investments 0 3,707 3,707 Short-term securities Cash and Deposits 7,005 (3,707) 3, , , Investment Income 2007/ / Income from Fixed 4,345 4,039 Interest Securities Dividends from Equities 5,937 4,921 Income from Pooled 1,692 1,235 Vehicles Cash & Deposits Other 0 (113) Other Income Foreign Exchange profits/ (651) 110 (Losses) Total Income 11,686 10, Investment Management Expenses 2007/ / Management and custody 999 1,033 Advisory Fees Other ,153 1,195 14

15 11. Investments 2007/ / Equities UK Quoted 113, ,299 Overseas 59,547 64,031 Futures Fixed Interest securities UK 64,855 65,009 64,855 65,009 Index-Linked Securities UK 29,865 28,000 29,865 28,000 Mortgaged Backed Securities UK Pooled Investment Vehicles UK Managed Funds - Other UK Quoted 1,732 3,008 UK Unquoted Overseas 35,642 32,424 UK Unit Trust UK Property 27,707 35,525 65,171 71,037 Cash Instruments UK Short Term Investments L.B of Havering 6,673 3,707 Cash Deposits 4,949 3,259 Managers Futures ,648 7,005 Total Investments , Net Current Assets 2007/ / Current Asset Investment Income 2,674 2,509 Sold assets 4,416 2,087 Pensions 20 6 Contributions VAT/UK Tax ,596 4,904 Current Liabilities Purchased assets 3,104 1,569 Pensions Other Expenses ,579 2,300 Net Current assets 4,017 2, Related Party Transactions There were no transactions with related parties other than those disclosed elsewhere within the accounts. In 2007/08, 0.461m was paid to the Council for administration ( 0.442m in 2006/07) and m ( m in 2006/07) was paid by the Council to the Pension Fund in respect of employer s contributions. During the year no Member or Council officer with direct responsibility for pension fund issues has undertaken any declarable material transactions with the Pension Fund. 15

16 Statement of the Actuary for the year ended 31 March 2008 Introduction The Scheme Regulations require that a full actuarial valuation is carried out every third year. The purpose of this is to establish that the London Borough of Havering Pension Fund (the Fund) is able to meet its liabilities to past and present contributors and to review employer contribution rates. The last full actuarial investigation into the financial position of the Fund was completed as at 31 March 2007, in accordance with Regulation 77(1) of the Local Government Pension Scheme Regulations Actuarial Position 1. Rates of contributions paid by the participating Employers during 2007/08 were based on the actuarial valuation carried out as at 31 March The valuation as at 31 March 2007 showed that the funding ratio of the Fund had improved since the previous valuation with the market value of the Fund s assets at that date (of 366.1M) covering 68% of the liabilities allowing, in the case of current contributors to the Fund, for future increases in pensionable remuneration. The main reasons for the improvement in the funding ratio since 31 March 2004 are higher than expected investment returns on the Fund's assets, along with additional employer contributions paid to reduce the deficit revealed at the 2004 valuation. These have been partially offset by the impact of changes in the actuarial assumptions used to reflect higher price inflation expectations and longevity improvements. 3. The valuation also showed that the required level of contributions to be paid to the Fund by participating Employers (in aggregate) with effect from 1 April 2008 was as set out below: 15.8% of pensionable pay to meet the liabilities arising in respect of service after the valuation date. Plus 9.0% of pensionable pay to restore the assets to 100% of the liabilities in respect of service prior to the valuation date, over a recovery period of 25 years from 1 April Less 3.4% of pensionable pay in respect of assumed additional investment returns over the period to 1 April These figures are based on the Regulations in force, or enacted by Parliament and due to come into force, at the time of signing the valuation report and, in particular, allowed for the following changes to the Fund benefits since the previous valuation: The Rule of 85 retirement provisions were reinstated, and subsequently removed again. Transitional protections for some categories of member were extended to widen their coverage. Changes were made consistent with the Finance Act A new scheme has been put in place which came into effect as at 1 April All existing members transferred to the new scheme as at that date. 4. The majority of Employers participating in the Fund pay different rates of contributions depending on their past experience, their current staff profile, and the recovery period agreed with the Administering Authority. The rates of contributions payable by each participating Employer over the period 1 April 2008 to 31 March 2011 are set out in a certificate dated 27 March 2008 which is appended to our report of the same date on the actuarial valuation. If the assumptions are borne out in practice, the rate of contribution for each employer would increase as at 1 April 2011 due to the cessation of the allowance for assumed additional short term investment returns. It would then continue at the resultant level for the balance of the recovery period used for that employer, before reverting to the relevant long term rate. In practice contribution rates will be reviewed at the next actuarial valuation which is due to be carried out as at 31 March The contribution rates were calculated using the projected unit actuarial method and taking account of the Fund s funding strategy as described in the Funding Strategy Statement. 16

17 6. The main actuarial assumptions were as follows: Discount rate for periods In service Admitted Bodies Scheduled Bodies Left service Admitted Bodies: Scheduled Bodies: Short term investment returns until 1 April 2011 Equity/property assets Other investments Rate of general pay increases Rate of increases to pensions in payment Valuation of assets 6.2% a year 6.2% a year 5.2% a year 6.2% a year 7.2% a year 5.2% a year 4.7% a year 3.2% a year market value 7. This statement has been prepared by the Actuary to the Fund, Hewitt Associates Limited (previously Hewitt Bacon & Woodrow Limited), for inclusion in the accounts of the London Borough of Havering. It provides a summary of the results of the actuarial valuation which was carried out as at 31 March The valuation provides a snapshot of the funding position at the valuation date and is used to assess the future level of contributions required. This statement must not be considered without reference to the formal valuation report which details fully the context and limitations of the actuarial valuation. Hewitt Associates Limited does not accept any responsibility or liability to any party other than our client, the London Borough of Havering, in respect of this statement. Hewitt Associates Limited 16 October

18 CONTACT POINTS FOR FURTHER INFORMATION If you have any queries on the benefits or costs of membership of the Pension Fund please contact: Pensions Administration Pension Office Mercury House, 4 th Floor Romford, RM1 3DS Telephone: / 2981/ pensions@havering.gov.uk For further information on issues relating to Fund Investments and Accounts, or feedback on any of the contents in this report please contact: Debbie Ford Pension Fund Accountant Town Hall, Main Road Romford, RM1 3BB Telephone: debbie.ford@havering.gov.uk Other useful addresses: Local Government Pension Scheme website: The Pension Service website: 18

19 APPENDICES 19

20 PENSION FUND GOVERNANCE STATEMENT JULY

21 1. The Council is the Administering Authority of the Pension Fund. The council has delegated to the Pensions Committee various powers and duties in respect of its administration of the fund. 2. Constitutional Arrangements Under the Council s Constitution the duties and terms of reference of the Pension Committee are as follows: To consider and agree the investment strategy and statement of investment principles for the pension fund and subsequently monitor and review performance. Where appropriate and above staff delegation levels to recommend staff to invite tenders and award contracts for actuaries, advisers and fund managers or other related investment matters. To appoint and review the performance of advisers and investment managers for Council and pension fund investments. To take decisions on those matters not to be the responsibility of the Cabinet set out in Sections 7, 12 or 24 of the Superannuation Act Current Membership of the Pension Committee The Pension Committee currently consists of six councillors listed below: Conservative Group Melvin Wallace (Chairman) Roger Ramsey (V.Chairman) Robert Benham Robby Misir Residents Group Clarence Barrett Linda Van den Hende Three Members constitute a quorum. The staff trade union may appoint two representatives, entitled to attend and speak at meetings of the Pension Committee. They possess no voting powers. These representatives are however entitled to remain within the Committee, should the public be excluded on the grounds that exempt information is to be considered. Scheduled and Admitted bodies may appoint one representative, entitled to attend and speak at meetings of the Pensions Committee on their behalf. No voting rights are currently assigned to this representative but will be reviewed once appointed. The Committee obtains and considers advice from the authority s officers, and as necessary from the fund s appointed professional advisor, actuary and performance measurers who also attend the meetings as and when required. Long membership of the Committee is encouraged in order to ensure that expertise is maintained within. The Council recommend that the membership of the Pension Committee remain static for the life of the Council in order that members are fully trained in matters relating to investment, unless exceptional circumstances require a change. Furthermore substitute members are expected to have also been trained. Day to day management of the fund is delegated to the Group Director Finance and Commerce. 21

22 The Committee is supported by the Group Director of Finance and Commerce and the Assistant Chief Executive Legal and Democratic Services. The Head of the Exchequer Services has the responsibility to administer the Council s pension fund. 4. Training/Reimbursement An annual training plan is submitted to the Pensions Committee for approval. Committee Members receive in depth training on a wide range of topics. Specific training is given on specific investment topics prior to any key decisions being taken. This approach ensures that important decisions are taken whilst training is still fresh in Members minds. Members expenses are reimbursed in line with the council s constitution as laid down in part 6 Members Allowance Scheme. 5. Whistle Blowing The Pension Committee comply with the Whistle Blowing requirements of the Pension Act It urges anyone to inform the correct authorities of any known wrong doings. 6. Diary The Committee meets five times a year and occasionally holds extra meetings if required. 7. Further Trustee Responsibilities on Governance and Stewardship Trustees are encouraged to look beyond administration procedures to really understand the key risks associated with all the functions and activities of the scheme. They are expected to consider risk management and stewardship in broad terms. Key risks include: Risk of fraud Corporate risk risk of deterioration in the strength of employer covenant Funding and Investment risk inappropriate investment strategies (one example of this could be risk of a mismatch of assets and liabilities) Compliance of Regulatory risk risk of failure to comply with scheme rules and legislation The further practical steps undertaken to cover these risks are as follows: The Statement of Investment Principles includes procedures to undertake a risk management review, and ensures terms of reference of delegations cover all key responsibilities. There are codes of conduct in place which ensure there is a process in place that considers potential conflicts of interest, with clearly identified steps to mitigate the likelihood or protocols if conflict occurs. The Pension Committee periodically sets out a business plan for the year. 8. Accountability and publication of information Details of the Pension Committee meetings are published on the Council s website together with agendas and minutes. The meetings of the Pension Committee are held at the Town Hall and are open to the public. 22

23 Scheduled and Admitted bodies are notified in writing after each meeting and are informed of any major issues, and directed to the Agenda and minutes published on the Council s web-site. An Annual Pension Fund Report and Accounts is published and circulated to all council members, reporting on the activities and investment performance of the fund. The report also includes the meetings held and details of matters considered. Extracts of the annual report are reported in a booklet sent to all scheme members. 9. Reviewing and Updating As well as undertaking an annual review the Council will review the policy as and when material changes occur. 10. Compliance table A table is appended to this document and shows the extent of compliance with guidance given by the Sectary of State. 23

24 PRINCIPLE A Structure a. The management of the administration of benefits and strategic management of fund assets clearly rests with the main committee established by the appointing council. b. That representatives of participating LGPS employers, admitted bodies and scheme members (including pensioner and deferred members) are members of either the main or secondary committee established to underpin the work of the committee. HAVERING POSITION Full compliance. Duties and terms of reference are laid out in the Councils constitution (Part 3) and states that management of the pension fund lies with the Pensions Committee. Sections 2 and 3 of the Governance Compliance Statement refer. Full compliance. Admitted/Scheduled bodies representatives may appoint one representative to attend and speak at committee meetings. The staff trade unions may appoint two representatives to attend and speak at meetings. There is no secondary committee. Section 3 of the Governance Compliance Statement refers. c. That where a secondary committee or panel has been established, the structure ensures effective communication across both levels. d. That where a secondary committee or panel has been established, at least one seat on the main committee is allocated for a member from the secondary committee or panel. No secondary committee or panel has been established. No secondary committee or panel has been established. 24

25 PRINCIPLE B Representation a. That all key stakeholders are afforded the opportunity to be represented within the main or secondary committee structure. These include: i) employing authorities (including non-scheme employers, e.g. admitted bodies); HAVERING POSITION i) Full compliance - A position has been established for Admitted/Scheduled bodies representative to be a member of the main committee, this position is currently vacant while ongoing discussions are being held with the employing authorities regarding appointment. Supplementary to this they are consulted for their views with regard to various policies and are directed to papers and reports held on the Council s website. ii) scheme members (including deferred and pensioner scheme members), iii) where appropriate, independent professional observers, and iv) expert advisors (on an ad-hoc basis) ii) Full compliance via union representation iii) Non compliance The Pension Committee have considered this and decided not to appoint an independent observer on the basis that the current monitoring arrangements are sufficient for the size of the fund. iv) Full compliance The fund has appointed an Investment Advisor, an Actuary and Performance Measurers, who attend meetings as and when required. Section 3 of the Governance Compliance Statement refers. 25

26 PRINCIPLE C Selection and role of lay members a. That committee or panel members are made fully aware of the status, role and function they are required to perform on either a main or secondary committee. HAVERING POSITION Full compliance. Duties and terms of reference are laid out in the Councils constitution and states that management of the pension fund lies with the Pensions Committee. Sections 2 and 3 of the Governance Compliance Statement refer. D b. That at the start of any meeting, committee members are invited to declare any financial or pecuniary interest related to specific matters on the agenda. Voting a. The policy of individual administering authorities on voting rights is clear and transparent, including the justification for not extending voting rights to each body or group represented on main LGPS committees. Full compliance. Declarations of interest are always an agenda item at the pension committee meetings. Section 7 of the Governance Compliance Statement refers. Partial compliance. The Governance Compliance Statement is clear about voting rights but currently does not include justification for not extending voting rights to each body. Going forward pension committee members have decided to review voting rights when the new membership arrangements are in place (i.e. membership has been extended to include one representative for the admitted/scheduled bodies but no appointment has yet been made). Section 3 of the Governance Compliance Statement refers. 26

27 PRINCIPLE E Training/Facility time/expenses a. That in relation to the way in which statutory and related decisions are taken by the administering authority, there is a clear policy on training, facility time and reimbursement of expenses in respect of members involved in the decision- making process. HAVERING POSITION Full compliance. Member s expenses and allowances are laid out in the Council s Constitution (Part 6). An annual training plan is drawn up at the start of each calendar year; consideration is given to prioritise training around the issues that may require decisions in the forthcoming year. b. That where such a policy exists, it applies equally to all members of committees, subcommittees, advisory panels or any other form of secondary forum. c. That the administrating authority considers the adoption of annual training plans for committee members and maintains a log of all such training undertaken Full compliance. As above. Full compliance. As above. An annual training plan is drawn up at the start of each calendar year and agreed by members of the pensions committee. A log is maintained and records attendance and training undertaken. Section 4 of the Governance Compliance Statement refers. F Meetings (frequency/quorum) a. That an administering authority s main committee or committees meet at least quarterly Full compliance. The Pension committee meets five times a year and occasionally holds extra meetings if and when required. b. That an administering authority s secondary committee or panel meet at least twice a year and is synchronised with the dates when the committee sits. Sections 2, 3 and 6 of the Governance Compliance Statement refer. No secondary committee or panel has been established. 27

28 PRINCIPLE c. That an administration authority who does not include lay members in their formal governance arrangements, provide a forum outside of those arrangements by which interests of key stakeholders can be represented. G Access a. That subject to any rules in the council s constitution, all members of main and secondary committees or panels have equal access to committee papers, documents and advice that falls to be considered at meetings of the main committee. H Scope a. That administering authorities have taken steps to bring wider scheme issues within the scope of their governance arrangements I Publicity a. That administering authorities have published details of their governance arrangements in such a way that stakeholders with an interest in the way in which the scheme is governed, can express an interest in wanting to be part of those arrangements. HAVERING POSITION Full compliance. Membership on the pensions committee has been extended for one representative to serve all admitted/scheduled bodies, which is currently vacant. Until the new position is filled the Council will continue with existing arrangements. The current forums for which stakeholders interests can be represented are: Through invitation to committee meeting Written correspondence employers are invited for comments via letters and as part of any consultation process on proposed policy changes. Views are also invited from scheme members, details of which are contained in an annual leaflet. This is distributed with the annual benefit statements and available on the council s website. Full compliance. Committee papers are sent to members at least 7 days prior to the meeting and published on the Council s website. Section 8 of the Governance Compliance Statement refers. Full compliance. The Committee already considers a wider range of pension issues. Section 7 of the Governance Compliance Statement refers. Full compliance. Governance arrangements are published on the council s website and comments are invited from stakeholders. Section 8 of the Governance Compliance Statement refers. 28

29 29

30 PENSION FUND COMMUNICATION STRATEGY (REVISED MARCH 07 AND COMPLIANCE CHECKED NOV 08) 30

31 Communication Strategy Introduction An effective communications strategy is vital for any organisation which strives to provide a high quality and consistent service to its customers. There are six distinct groups with whom the Fund needs to communicate: COMMITTEE MEMBERS SCHEME MEMBERS PROSPECTIVE SCHEME MEMBERS SCHEME EMPLOYERS INVESTMENT FUND MANAGERS OTHER BODIES Set out in this document are the mechanisms which are used to meet those communication needs. The fund aims to use the most appropriate communications medium for the audiences receiving the information. This may involve using more than one method of communication Havering Pension Fund, Town Hall, Main Road, Romford, RM1 3BB 31

32 PENSION COMMITTEE MEMBERS The Fund management and administration decisions have been delegated under the Council s constitution to the Pensions Committee. Knowledge building and training is provided via the Fund s Officers, advisors and external experts with regards to investment and administration matters Admitted and Scheduled Bodies who have members in the Fund are invited to the Pensions Committee meetings, as are the Trade Unions who attend all meetings on an observer basis, but whose views are given equal weighting. The Trade Union representatives are also Scheme members. The work of the Trade Union members is supported by Trade Union representatives. SCHEME MEMBERS Internet The Fund will establish an extensive internet area containing Scheme details, Scheme leaflets etc. There will also be links to other organisations relevant to Scheme members, e.g. employers, AVC providers, employers organisations etc. Abridged Report and Accounts An abridged copy of the Fund s Report and Accounts is circulated to all Scheme members on an annual basis via a pension fund leaflet/booklet. Annual Newsletter Newsletters are issued to members of the Fund, at least annually, the contents of which cover current pension topics within the LGPS, specific issues for Havering and the pensions industry in general. Scheme Literature An extensive range of Scheme literature is produced by the Administering Authority and is supplied to employing bodies and Scheme members directly. Pay Advices The Fund only issues a pay advice to Scheme pensioners if their net pay varies by more than This is utilised as a communication mechanism as well, e.g. Pensions Increase and P60 information is communicated using this medium on an annual basis. Correspondence The fund utilises both surface mail and to receive and send correspondence. Existence Validation Pensioners The Fund undertakes an annual exercise conducted through correspondence in order to establish the continued existence of pensioners. Telephone Help Line It is intended to provide a dedicated help line for Scheme members and this will be widely publicised in Scheme literature. Our Aspirations A password security system which allows Scheme members to transact a significant proportion of their pensions business without having to enter into formal correspondence. Pension Roadshow The Fund stages Pensions Roadshows as and when required to communicate with scheme members on changes to the scheme or promote the scheme or specific aspects of it. Additionally, Pensions Administration Staff attend Pre-retirement courses run by the Council to provide information to staff nearing retirement. Benefits Statements An Annual Benefit Statement is sent direct to the home address of all members who are contributing to the Fund at the previous financial year end. Benefit Statements are also sent direct to the home address of deferred members where a current address is known. 32